What Happened To The Toxic Assets?
Last fall and early in 2009, we heard the term toxic assets it seems like 50 times a day. Now, for months, you don’t even hear them mentioned at all. What happened? Did they go away? Are they no longer toxic?
Now, I’m not an expert and I don’t work in the banking sector so most of what I’m writing here is mostly questions and a healthy curiousity. If a reader is knowledgable about this, I truly welcome his or her comments.
No More Mark to Market
My first guess is that due to the suspension of the mark to marketing account rules, banks are no longer writing down the values of these assets. Because of this, they are not coming into play in the current environment. Banks can “mark” or value these assets higher than the market would pay for them which keeps their balance sheets inflated to a degree.
My question then becomes how can you actually invest with any level of confidence in banks if you have no idea what the heck is on their balance sheets and how much they’re actually worth? Because of this, I feel like anybody buying these banks stocks are traders with one foot out the door already.
Will these banks mark down asset values at a later time? When is that later time? Will the banks earn enough in the coming quarters to absorb these losses? Are the banks healthy or are they zombies? Ahhh, too many questions.
How the heck does an average investor invest in financials? How does someone who isn’t a rocket science make any type of judgement on whether or not a bank like Citi is a good investment moving forward. I sure as heck can’t therefore I refuse to touch them.
This post was hardly an answer to any question, but more an expression of my frustration due to the lack of transparency in our system. My advice is to sit on the sidelines when it comes to investing in banks until things shake out further. This could be years I guess before that happens.